Saturday, December 31, 2011

This is a followup to my previous post, as further need for clarification came about from comments (hat tip Mario). I don't object to the JG itself, as you may already know from past posts, I advocate a government jobs program during a deep cyclical downturn, I just have issues to the permanence being proposed. To me it comes down to either not making JG permanent OR if you want to make it permanent in order to set a stable price level, it should pay at a much lower wage than private sector, especially when going into an economic upturn. Otherwise, why would anyone take a private sector job that can someday be made obsolete by the market when you can always take a safe government-guaranteed JG job that will always be there no matter what. In an upturn, keeping the JG would make the cost to hire more prohibitive for new businesses, and looking at tradeoffs for both employees and would-be employers, it would entail a much higher assured premium for private business to make up for the higher risk of joining or setting up in private industry, when there are government-assured jobs for the taking for all posterity. Usually no one changes jobs unless it's for a higher wage, and no one will want to make the risk for so low a spread over riskless government positions.

I'm not thinking of the big multi-national corporations as those who may suffer here. I'm thinking of your neighbourhood shopkeeper or your local smallscale job creator who only hires 10-20 people at a time. Their profits are not that high, and their tradeoff with starting a business vs just getting a JG may not amount to a lot. Workers will have options when the economy booms again, and this will increase the cost to private businesses, most particularly for those who are small-scale. The JG could very well just crowd out the smallest firms permanently. If their wage costs for hiring 10 people have risen from $400K to $700K a year because of having a JG during a booming economy, that difference could very well be their profit already. And why would anyone continue risking his capital (which could very well be his retirement nest egg) when the JG assures him an assured income/wage for himself, and he also knows his own workers also have the same tradeoffs, and hence, could leave the firm much more easily during the booming economy when his competition for their services is not just other private firms, but government as well?

By keeping the JG in a boom, the wage competition will start at a higher level because of the need to attract workers at the now higher lowest level. This dynamic affects the whole salary structure all the way up to the top. It's just the way it is in a private sector firm, working in a free market.

For example, if there is still a JG program in an upturn, and government is offering $10/hr, then businesses would have to offer maybe $15/hr to attract its most basic workers away from the JG, and therefore, wages for more crucial skills would probably rise from $50/hr to $70/hr, and these could very well be the skills that new developing industries would need to develop their new products and the new markets. And if government increases the minimum JG wage to $15/hr, then perhaps the crucial skills business startups need to hire will now cost $90-100/hr. The JG wage doesn't have to increase much because it has a potentially magnifying effect on all private sector wages during booms. It won't be long before overall wage costs increase 50%, especially if the company employs more of the higher earning people who will now be compensated higher as well. This includes programmers, doctors, lawyers, tradespeople, equipment handlers. It depends on the business, and what the skilled worker brings to it. These people work for firms directly or as contractors, too. And the small businesses work a contractors for other businesses, whose costs also increase when the small business' costs increase. This can be a self-reinforcing cycle during boom times. The skills developed through JG may be good for private business if the workers are going to be available when they are already hiring. But while the demand floor will be a decent life wage during a recession, the higher wage floor will price small businesses out during an upturn. It would not be illogical to think that a permanent JG could actually entrench current big players of the private sector because small up and comers will be priced out of the market for people.

I'm not saying a JG wouldn't advantage workers. They would actually benefit greatly, because the JD gives them more leverage to negotiate during a boom. But what are the costs long-term? Some businesses may get workers, others not without extensive premium. Different situations for different people, but during boom times, there will definitely be a crowding out and/or inflationary effect of government competing for scarce workers during a boom. I wouldn't characterize a JG during a boom a completely free market. If there's a monopoly issuer of currency that competes for scarce resources with private firms that need to generate positive cash flow to survive, it's an uneven paying field.

I applaud efforts to launch community-based JG-sponsored jobs programs that provide livable wages. But you don't want people to keep staying with the same community jobs their whole life. You want them to have opportunities to get back into private industry, and you want private industry to have incentives too to make their risky investments (when we are finally out of this recession). You don't want the JG making the hurdle to profitability much higher for these risky investments. And you don't want these prospective entrepreneurs ending up not being as proactive in developing and investing in their businesses, because they can always go back to getting a JG job if things start to become too difficult with the business. There's just less incentive for risk-taking in this scenario.

There's a difference between having a program with a known end date, where everyone employed there has no choice but to find a job in private industry; and having an open-ended program, that can be used by workers to out-negotiate small businesses the way large businesses used union-busting to out-negotiate the workers. Workers can game the new system to their advantage, negotiate for much higher wages, and then quitting much more easily over the triflest of things, because they can always go back to the JG. If you were the small scale employer, this changes your planning dynamics. At a certain price point, the entrepreneur himself would probably be also thinking he should just take a government job himself.

If we had a JG a hundred years ago, we might still have horse-tending positions, manual candlemaking jobs, and manual weaving positions. We may never have transitioned to the automobile, to the electricity economy, or to mass-produced goods. It would have been up to the government to invent the automobile, innovate the mass-market economy, and to develop the electrical industry. The JG's main aim, if it is instituted, will be to provide jobs to those looking for work, not to come up with new products, or obsoletize those that are currently being offered. I'm not sure progress would have been as great as we have it if everything had been done by an entity that monopolizes the economy like government does. During a boom, a continuing JG could actually lower productivity, innovation and pioneering.

Addendum: I appreciate that MMT acknowledges that price distortions will happen when JG is introduced. But if it stays during a subsequent boom, these distortions will stay, and they will permanently alter the cost structure for private businesses. No need for the JG to chase after private sector wages, because in the first instance, it may already have killed all lowest skilled jobs in the private sector (capitalism makes businesses very tight on cost structure) Perhaps all businesses will just end up outsourcing all lowest skilled jobs to the government. I don't advocate for this to happen, where all businesses could start expecting government to pay for all their minimum wage workers. Wouldn't this be some sort of permanent subsidy to capitalists, a sort of crony assistance to the biggest employers of minimum wage jobs? Ex. Under a JG regime, Walmart could start justifying that they are a JG supporting company that creates a lot of jobs for the JG, so the government better start paying their line workers. I'm sure MMT doesn't intend for this to happen, but capitalism has a way of going around these new distortions, maybe for the worse.

PPS. Re: 100% employment, I agree it's a noble goal. But isn’t it a better goal to just get enough people employed to jumpstart aggregate demand and get the economy working again? Going for 100% at all times puts the economy at risk of becoming dependent on the JG for good. Otherwise, it stops being a countercyclical program, and becomes another alternative economy unto itself, since ensuring everybody has a JG job offer ensures that nobody takes a private sector job unless it’s for a premium above the JG wage. This prices out many small businesses for labour, and probably most startups. And it completely shields workers from making the difficult decisions of making the necessary adjustments and learning new skills, so that they can rejoin the regular economy, wherever its growth is going to be.

31 comments:

> To me it comes down to either not making JG permanent OR if you want to make it permanent in order to set a stable price level, it should pay at a much lower wage than private sector, especially when going into an economic upturn. Otherwise, why would anyone take a private sector job that can someday be made obsolete by the market when you can always take a safe government-guaranteed JG job that will always be there no matter what.

I don't understand your logic. Sounds like the typical mainstream argumentation to me. You're saying that the JG scheme would be inflationary in economic upturns?

I disagree.

(1) Ok, you've been saying that the JG wage -- if JG was permanent -- should be much lower than the private wage level.

So you want a minimum wage legislation for the private sector, where the minimum wage is considerably higher than the JG wage?

Does that not seem it would lead to *more* problems for your local mom-and-pop-business, rather than less?

(2) Let me try to lay what would happen if the JG was permanent, as the economy turned from a slump to a boom.

First, we all seem to agree that slumps could be controlled, be made shorter and less severe, in a non-inflationary way using the JG scheme. Right?

So, let's say that there is a $10-per-hour JG in place. As the economy is in a downturn, the JG wage payments constitute increased government deficit spending. (This works as an automatic stabilizer, as the JG-payments responds to fluctuations in private spending.)

The stimulus causes aggregate demand to increase. Businesses start meeting higher demand. After a while, they can start hiring again.

Or can they? This is your worry, right? They will have to offer something that attracts workers from the JG pool. A few dollars more per hour? A better benefit package perhaps?

But why would that be so impossible? Due to the government deficit spending, and the consequent economic upturn, business start facing bigger demand, and will ultimately be able to hire these new workers. Why would there be a problem there?

And the JG program does *not* mean that workers can negotiate much higher salaries. Why would it? The JG offers a basic wage-and-benefit-package at a constant floor level. You seem to suggest that this floor level would chase after private wage levels in upwards spirals? But it's a constant floor level. There will be no "chasing after".

Also, please think carefully in your argumentation about the following:

MMT acknowledges that at the point JG is introduced there may be price distortions.

But when the program has been in place for a while and the initial price distortions have calmed down, JG should work as a price stabilizer.

In your argumentation, many of the price- and wage effects you're discussing sound like the initial price effects -- things what will happen at the point JG is introduced. Please be careful there. What we should be discussing is price- and wage-level effects from a JG program that is already in place.

It's on concerns like this that I say the better answer is to combine a basic income grant with the job guarantee- the grant providing enough to get everyone over the poverty line (say $10K/year/adult 5k/child at the current price level), and then the grant able to set a much lower wage bar (say $3/hour). This would also have the benefit of allowing a given wage to provide the same effective degree of disposable income, regardless of a person's family size, as well as clearing the labor pool of people who are only working out of desperation, clearing the way for more investment in labor saving technology and allowing more people the needed support to pursue entrepreneurial or artistic endeavors, without having to risk everything in the process.

But even without that, the answer comes to "So what?" Labor prices would become a larger fraction of prices, but not the whole price; we'd see a bit of short term inflation as the effect of decades of wage suppression bubble out, but it would settle at a point where effective income and overall business revenues had still increased more than prices. You miss the fact that those businesses will be able to sell more products because there are more potential customers and they'll be able to set prices that are nominally higher, but actually about the same at absolute worst, if not actually lower, in comparison to the income level that people are now able to enjoy.

Mario, cheers! I agree it has come down to a normative discussion. During a boom, a continuing JG delivers zero sum benefits, whose additional benefits to workers starts penalizing the smallest employers. I don't like giving too much to one party at the expense of another.

Hugo: "So you want a minimum wage legislation for the private sector, where the minimum wage is considerably higher than the JG wage? Does that not seem it would lead to *more* problems for your local mom-and-pop-business, rather than less?"

I would see it as a JG much lower than industry standard minimum wage during a boom, so people are encouraged to shift back to regulator employment. This solves the mom and pops problem, no add to it.

"And the JG program does *not* mean that workers can negotiate much higher salaries. Why would it? The JG offers a basic wage-and-benefit-package at a constant floor level. You seem to suggest that this floor level would chase after private wage levels in upwards spirals? But it's a constant floor level. There will be no "chasing after".

The JG enables higher wage negotiation if the JG promises them a similar wage to a private sector job. No need for the JG to chase after private sector wages, in the first instance, it may already have killed all lowest skilled jobs in the private sector (capitalism makes businesses very tight on cost structure) Perhaps all businesses will just end up outsourcing all lowest skilled jobs to the government. Is this what you want to happen? That all businesses expect government to pay for all their minimum wage workers? Wouldn't this be some sort of permanent subsidy to capitalists? A sort of crony assistance to the biggest employers of minimum wage jobs?

"They will have to offer something that attracts workers from the JG pool. A few dollars more per hour? A better benefit package perhaps? But why would that be so impossible?"

It won't be impossible for all businesses, just to those who have the highest hurdle rates and lowest profit margins, i.e., new businesses and mom and pops. I appreciate that MMT acknowledges that price distortions will happen when JG is introduced. But if it stays during a subsequent boom, these distortions will stay, and they will permanently alter the cost structure for private businesses.

I do know that businesses will sell more products to more customers, than if these people were to remain unemployed. But in a boom, they wouldn't likely be unemployed anymore. Continuing the JG would just end up raising the costs for all businesses, and possibly constricting the formation of smaller businesses.

I'm not getting it. I think we differ in the theoretical understanding of how the JG-as-a-price-anchor works -- as a matter of logic -- rather than in political views.

> "I would see it as a JG much lower than industry standard minimum wage during a boom, so people are encouraged to shift back to regulator employment. This solves the mom and pops problem, no add to it."

The MMT heavy-weighters say (I believe) that the JG should offer a wage-and-benefit package that constitutes what is regarded (by the electorate) to be a minimum acceptable living standard.

Do you think a JG program should go substantially lower than that? Some kind of "work-and-starve" offer?

I don't. It should be a basic-but-decent-and-acceptable package that you can actually live on.

If business can't afford to attract workers from the JG pool, then either:

-- we're in an economic downturn

-- or the individual business in question is not profitable, and should not be subsidized (by having starving workers seeking work for wages below what is decent living standards). As a business, you'll have to offer a "decent" wage package -- or just rethink your business model.

If businesses at large can't afford to attract JG workers, then there's an economic downturn. The JG pool is large. The JG wage payments then constitute government deficit spending. This increases aggregate demand. Eventually businesses will necessarily meet higher demand. Sales will increase. Profitable businesses will ultimately hire new workers.

> "No need for the JG to chase after private sector wages, in the first instance, it may already have killed all lowest skilled jobs in the private sector (capitalism makes businesses very tight on cost structure)"

Jobs paying less than the basic-decent-acceptable wage level would be killed, yes. This goes also for current minimum wage legislation -- firms that can only offer a worse package than that are not legally able to hire. The JG wage package would functionally be something like a new minimum wage offer.

Are you opposed to this? Should minimum wages be cut? That would be more of a neo-classical or Austrian stand then. Many believe that unemployment is the result of too high wages and/or unemployment benefits. And that wage cuts would clear the labor market. MMTWiki tries to address that here: http://mmtwiki.org/wiki/The_Role_of_Government_Deficits#Wage_Cuts_or_Government_Deficits.3F. MMT emphasizes that unemployment is the result of deficient aggregate demand, not of too high wage/benefit levels. Do you agree, or do you take a different stand point there?

> "Perhaps all businesses will just end up outsourcing all lowest skilled jobs to the government. Is this what you want to happen? That all businesses expect government to pay for all their minimum wage workers? Wouldn't this be some sort of permanent subsidy to capitalists? A sort of crony assistance to the biggest employers of minimum wage jobs?"

This is not something I want to happen. JG jobs should not be used for outsourcing private activity. That would be unfair to other businesses etc. Totally agree with your sentiment here.

Hmm. Vast differences in theoretical understanding.

Basically: JG is just a better alternative to unemployment benefits. Not something that should compete with private sector activity.

What JG opponents need to explain is this: Why is it better to keep people in unemployment than in employment? Why is mass unemployment better than full employment?

Unemployment benefits -- just like JG wages -- could be criticized for crowding out private activity. There is no difference from JG in that regard. In the current system (with no JG), would you suggest that unemployment benefits should be cut down substantially? It sounds like that would logically follow from your argumentation.

Wouldn't this be some sort of permanent subsidy to capitalists, a sort of crony assistance to the biggest employers of minimum wage jobs?

that would only happen if non-government agencies could qualify for JG subsidy funding. Unless the nga was a "neutral" non-profit (like red cross, health care, homelessness, etc.) it just wouldn't qualify as a JG sponsor. So you're concern here is legislative and easily avoided.

it sounds like you are attempting to have your cake and eat it too Rogue. First you claim rising wages will crowd out small businesses. And then you say here that the JG (with fixed wages mind you) offers "additional benefits." It can't work like that Rogue.

The JG wages are fixed at 8, 10/hr whatever. In a boom economy small business will HAVE TO raise their wages anyway regardless if a JG exists or not. And so if the JG is set at or near min. wage there is NO PRICE EFFECT on small businesses. Zero. None. Zip. Zilch. What "additional benefits" are there for a person working under a static JG wage in a booming economy where there's more wage differentials in the private sector? As far as I can tell there just isn't any.

Hugo: "I'm not getting it. I think we differ in the theoretical understanding of how the JG-as-a-price-anchor works"

You're still not getting it because what I'm talking about here is whether we should keep the JG when the private sector is already hiring. I'm sorry but I don't know how else to explain to make you understand( I have been repeating the same in point in all my replies)… I'm not opposed to the JG now, I think it's the solution to the current economic predicament. I'm opposed to continuing the JG when private sector is already hiring.

"Do you think a JG program should go substantially lower than that? Some kind of "work-and-starve" offer?"

Why would workers starve when private sector is already willing to hire them?

"If business can't afford to attract workers from the JG pool, then either: - we're in an economic downturn -- or the individual business in question is not profitable,"

Or the JG keeps hiring the workers at the wages the private sector would otherwise have hired them. This would definitely keep more individual businesses from being profitable if they were forced to up the minimum wage to get workers, which adjusts all wages across the spectrum upwards, all the way up to CEO whose salary will also adjust upwards.

"The JG pool is large. The JG wage payments then constitute government deficit spending. This increases aggregate demand. Eventually businesses will necessarily meet higher demand. Sales will increase. Profitable businesses will ultimately hire new workers."

That's been my point about the need for government hiring all these past months in previous posts. But my point in this post is what do we do when demand has increased? Does JG still keep hiring people? Sorry, but your argument seems to assume a permanent recession by default.

"Are you opposed to this? Should minimum wages be cut? That would be more of a neo-classical or Austrian stand then."

Yes, I believe JG wages should be cut when private sector is already hiring, otherwise many people will use the JG to cause an upward wage spiral in the private sector.

"Basically: JG is just a better alternative to unemployment benefits. Not something that should compete with private sector activity."

Why would workers still opt to get unemployment benefits when the private sector is already offering them jobs?

"What JG opponents need to explain is this: Why is it better to keep people in unemployment than in employment? Why is mass unemployment better than full employment?"

Again, why would anyone remain unemployed during an upturn? Who are these completely unemployable people, who would remain unemployed if not for a government job guarantee? Are there so many of these undesirables that there would still be mass unemployment once animal spirits have taken hold of the economy again? Did'nt we have a low unemployment rate in 90's? Don't you think we can go back to such conditions ever again? Don't you think having a JG now would bring the economy back to life eventually?

"There is no difference from JG in that regard. In the current system (with no JG), would you suggest that unemployment benefits should be cut down substantially? It sounds like that would logically follow from your argumentation."

Where in the post did I mention anything about cutting unemployment benefits? The whole post was about a time when employment is going strong again. Why is it important for the JG to stay when the economy is going strong already? I thought its aim is to employ people when the private sector is not hiring. Is there any other aim not being clarified for it?

Mario:"that would only happen if non-government agencies could qualify for JG subsidy funding."

Ok then, that just means many small scale businesses may just not get started then.

"First you claim rising wages will crowd out small businesses. And then you say here that the JG (with fixed wages mind you) offers "additional benefits."

Yes, I said that rising wages will crowd out small businesses. No, i did not say JG offers 'additional benefits'. I'm actually saying it should start offering less than private sector wages once it has been established that businesses are hiring already.

"In a boom economy small business will HAVE TO raise their wages anyway regardless if a JG exists or not. And so if the JG is set at or near min. wage there is NO PRICE EFFECT on small businesses.Zero. None. Zip. Zilch."

Yes it does have a price effect, because having the JG adds to worker demand. That's precisely why we are all advocating for a government jobs program RIGHT NOW, because it adds to demand for workers when private sector demand is lacking. When private sector is already demanding them, the JG distorts the wage price upwards.

In an economic up-turn, there may still be say a few percentages that are not being hired by the private sector.

The private sector economy does *not* have a tendency to full employment by itself -- not even in economic upturns.

That seems to be a major point of disagreement here.

If you truly believe that the private sector tends towards hiring all workers in economic upturns, then sure.. But that wouldn't change even if there was a JG program in place.

If there are too many people in the JG pool, it means that the economy is still over-taxed. So the JG spending continues. Eventually however -- at some point -- businesses will start meeting increasing demand be able to hire from the JG pool. There is just no problem there.

> "Yes, I believe JG wages should be cut when private sector is already hiring, otherwise many people will use the JG to cause an upward wage spiral in the private sector."

Here you flat out disagree with the MMT heavy weighters, I think. You're suggesting that JG would cause cost-push inflation in economic upturns (I think?). This is a disagreement in economic theory. I think they've mad it clear that a constant wage floor for those out of private sector work can not possibly cause upwards wage spirals -- no matter if economic upturn or downturn. (There is a possibility of distortionary effects at the point when a JG program is introduced however.)

So, this is a point they've been repeating over and over again -- JG does not cause cost-push inflation. (And neither does it cause demand-pull inflation). I should find a good reference and add some stuff on the Wiki. Perhaps Google "MMT Job Guarantee cost-push inflation"... I think Wray wrote about this in Understanding Modern Money, for instance.

This is really complicated stuff.. Difficult to discuss without ending up in frustration -- easy to miss eachother's points. Thanks for your patience.

Don't forget the jg is a transition job to facilitate the transition from unemployment to private sector employment.

problem is, in a boom, business doesn't like to hire the unemployed, so labor shortages and wage hike develop even as unemployment remains high. This was demo'd in argentina in 2001 with the jefes program facilitating the transition of over 1 million previously unemployed considered unemployable into private sector employment.

the formal way to say this is the jg is a more liquid buffer stock than unemployment, and therefore a better price anchor in a boom

Senexx, but if you set up a JG in a boom, who would join? Unless the JG is set up with a higher wage than minimum?

Hugo, and thanks also for engaging in the discussion. Ok, the wag spiral term is sloppy on my part. What I pertained to was the initial price distortion at introduction, where wages from the bottom all the way up increase more vs in the absence of the JG as a result, when the boom starts.

Warren, thanks for chiming in. I see the point about the private sector not hiring the unemployed. But I'm coming here from the understanding that when the JG was implemented during the recession, people are not unemployed s]anymore (and therefore more employable) during the subsequent boom. My concern is that those who have an existing job (the JG) wlll use it to parlay a larger entry wage in the private sector, resulting the price distortion I am discussing about withHugo.

Yes it does have a price effect, because having the JG adds to worker demand.

yes that type of a price effect would likely occur to some degree. But that is a rise in wages due to demand-pull inflation and that is not the concern you are expressing. You're concern is that wages will rise simply b/c the JG is implemented and not only that but they will rise to such an extent that certain industries and sectors of small business in particular will be dis-enfranchised and perhaps go out of business, etc. I am saying that it won't happen to that extent and that you're over-exaggerating the perhaps ever-so-slight rise in wages from a JG set at or around min. wage.

Regardless, this is a great convo and of course happy new year!!!

The main battle however is already won in that we both agree to start one up at least now (in a bust) and so that is a great thing and should perhaps be the larger focus and gain greater attention and discussion, etc.

None-the-less as always (and much appreciated)...it has been truly a rogue experience. ;)

Mario, happy new year too. It's hard to know for sure if I'm exaggerating the point or not, only actual experimentation will confirm my suspicions. However, such an experiment, if it turns out I'm correct, would result in higher success hurdles for smaller businesses, and hence, may completely alter the economy for good, unless we are open from the very start that such a program will not continue in similar fashion once the economy starts to have legs.

Hans, history seems to confirm your point, that's why I'm thinking the proper parameters to such a jobs program should be debated from the very start, including knowing when and how to wind it down.

It's definitely good to gauge the risks so I completely agree and applaud the critical discussion.

I'm actually more concerned about getting people "entrenched" into JG jobs than I am about price levels. I am not sure how good or bad it would be if the JG program snowballed with job promotions, increased hiring of "teams," grant writing, and further long-run projects and initiatives getting activated in and around the community (then again is that a bad thing? I don't know). The thing could become one more "sector" in the economy instead of what it is intended to be which is a transitional program.

The positive side of a more permanent and long-term JG program is that some things like building communities (rec centers, gardens, buildings, trainings, events, classes, youth activities, etc., etc.) that just are NOT a part of the capitalist model as there is not "profit motive" in the ventures. And very genuinely this to me is a MAJOR risk of capitalism from a long-term race survival perspective. What we are seeing today in our balance sheet recession is a crying out for more community support...and I expect that to only increase in pitch simply out of survival and human necessity. Building community is not "socialist" either however...it's a human need and instinct, and therefore a JG program that both accomplished hiring people and providing "buffer stock" as well as supported a more unified and participatory community to me could be (perhaps) a very vital aspect to our society in the 21st century. Something akin to the Italian medieval city-states that sparked INCREDIBLE art, science, and technology in the Renaissance. I think this could be a very strong element and case for a JG program.

I suppose an impermanent JG program could work so long as it was implemented effectively and in some semblance of timeliness. However with the way Congress is, the entire JG Program could easily be destroyed by legislative bottle-necking, and then we're right back to where we are now. :(

Mario, the community-building activities you mention are noble activities, and indeed SOME people should be doing them on a permanent basis. But the government shouldn't promise anyone and everyone who wants to break from the private sector to just do the community activities jobs for as long as they wish. Otherwise, we leave the door open to the JG swallowing up the entire labour pool (possibility only, but the probability of it eating a sizeable part of the labour pie is there)

I think Warren's posts answers your question about a JG in a boom - as for the possibility of a wage-price spiral - that assumes in aggregate everyone in the JG takes that position of negotiating a higher price.

The private sector does have the possibility to shop around within the JG - if one person wants a higher wage than what the private sector is offering then the private sector can offer it to someone else.

Senexx, not everyone will negotiate a higher price, yes. But a few doing so is enough to distort the market, and discourage some private sector hiring.

It will be hard for businesses to shop around for willing workers when the government is adding an open and unlimited demand for everyone willing to take a JG job. As I said to Mario earlier, having the JG adds to worker demand. That's precisely why we are all advocating for a government jobs program RIGHT NOW, because it adds to demand for workers when private sector demand is lacking. When private sector is already demanding them, the JG distorts the wage price upwards.

right and like sennexx pointed out and to which I agree...a small business will be able to find someone either in the JG or not that will accept the wage offered by the small business...even if it is equal to the JG wage. It's just a matter of "managing the spread" and ever good businessman knows how to do that. ;)

Plus like I've been saying...higher wages and greater opportunities are always "baked in" with any private sector job; and everyone (employees and employers) would know that and apply and hire accordingly. Perhaps the only possible exception would be if people could get promotions within the JG itself and thereby boost their resume without the need of the private sector at all. However that can easily be thwarted by simply not allowing for JG "promotions" from within. Problem solved as far as I can tell.

Senexx, I agree that the JG is an automatic stabilizer during a downturn. So what is it during an upturn?

I want to stress that I agree that we need some sort of jobs program to get people working when the private sector is not hiring.

But given that MMTers have indicated the JG is meant to provide 'transition jobs' only, I don't get the insistence to continue it when the economy has jump-started and the private sector is already willing to hire.

Continuing it will make it more costly to hire the people back into the private sector. If the JG is still there, with its catch-all aim of providing a job to anyone willing and able to work, then it's providing an additional demand for labour that raises the overall cost of labour for those who want to hire them away from the JG.

But given that MMTers have indicated the JG is meant to provide 'transition jobs' only, I don't get the insistence to continue it when the economy has jump-started and the private sector is already willing to hire.

B/c there is always an involuntary UE population that does not have to exist in our current monetary system, and b/c full employment with price stability is essentially the holy grail for all economists, and b/c starting and stopping the program would be a legislative nightmare to say the least (something akin to raising taxes when necessary, etc., etc.).

> "But given that MMTers have indicated the JG is meant to provide 'transition jobs' only, I don't get the insistence to continue it when the economy has jump-started and the private sector is already willing to hire."

You'll typically have a few percentages in involuntary unemployment even in economic upturns unfortunately.

> "Continuing it will make it more costly to hire the people back into the private sector."

The JG wage will functionally become something akin to a legislated minimum wage. So yes, a firm in the private sector will have to compete with the JG wage package, much like it will have to compete with a legislated minimum wage in today's system.

I think your position is that it would be beneficial to abandon JG -- or at least decrease the JG wages -- in an economic upturn?

If so, would it also be beneficial to abandon -- or at least decrease -- legislated minimum wages (in today's system) in economic upturns -- for the same reason?

> "If the JG is still there, with its catch-all aim of providing a job to anyone willing and able to work, then it's providing an additional demand for labour that raises the overall cost of labour for those who want to hire them away from the JG."

You are still arguing that JG leads to cost-push inflation (as compared to a system with non-JG), if I understand you correctly?

The same arguments could be made regarding minimum wage legislation, couldn't they?

I do understand your point (I think!). However, there are other points to be made that may compensate for it.

If the JG remains in place there will be a bit more government deficit spending. Right? So aggregate demand should increase a bit more. And after a while, businesses should start noticing increasing aggregate demand.

So the resulting effect with JG in place is a bit higher labor costs (due to the "minimum wage limit" resulting from JG) and a bit higher aggregate demand. And as long as there are "too many" workers in the JG pool, the government deficits continue -- and businesses will meet yet increasing demand. And finally they'll be able to hire. Higher labor costs -- but higher sales.

So the private sector will hire in times of higher aggregate demand, and let people go in slumps. The JG wage level constitutes a constant wage level that the private sector has to compete with. The size of the JG pool will fluctuate with the business cycles. At times of higher aggregate demand businesses will hire people from the JG pool, and vice versa.

Now, your idea would be to abandon JG in economic upturns (or at least decrease the wage level). This would be akin to abandon minimum wage legislation (or decrease the legislated level) in economic upturns.

Agreed, this would lower the costs of business to hire. But it would also lead to some downward pressure on wages. Usually, you would hear neoclassicals arguing that wages should be decreased in economic slumps rather than upturns -- so this is an interesting argument! Why would you want to put downward pressure on wages in economic upturns? Lower wages could also cause lower spending out of workers' income, in turn causing aggregate demand to decrease. The resulting effect is unclear -- lower costs of labor but lower sales?

MMT, however, typically prefers wage- and price stability rather than increasing or decreasing wages and prices. A constant JG wage would constitute a stable nominal price anchor over the whole business cycle.

MMT, however, typically prefers wage- and price stability rather than increasing or decreasing wages and prices. A constant JG wage would constitute a stable nominal price anchor over the whole business cycle.

Hugo: "I think your position is that it would be beneficial to abandon JG -- or at least decrease the JG wages -- in an economic upturn? If so, would it also be beneficial to abandon -- or at least decrease -- legislated minimum wages (in today's system) in economic upturns -- for the same reason?"

Yes, it's my position to cut JG, or at least decrease JG wages in an upturn. No, i'm not saying anything about cutting minimum wages. It's a completely different animal, but anyway, I'm of the position that it should be set at the livable standard level.

"You are still arguing that JG leads to cost-push inflation (as compared to a system with non-JG), if I understand you correctly? The same arguments could be made regarding minimum wage legislation, couldn't they?"

No, I'm arguing JG during a boom leads to demand-pull inflation. Minimum wage legislation pertains to a floor price. JG pertains to an open demand for any and all labour willing to work. As I said to Mario earlier, having the JG adds to worker demand. That's precisely why we are all advocating for a government jobs program RIGHT NOW, because it adds to demand for workers when private sector demand is lacking. When private sector is already demanding them, the JG distorts the wage price upwards. In short, a JG will ensure that no private sector will be able to get workers at the minimum wage level, but at minimum plus a negotiated premium (depending on how desperate for workers each business is). During a boom, a JG ensures that ALL workers are working at ABOVE minimum wage, and ALL businesses have cost structures HIGHER than what it would be without a JG. If minimum wage is already set at a livable standard, during a boom, ALL workers earn a premium above that level.

"So aggregate demand should increase a bit more. And after a while, businesses should start noticing increasing aggregate demand"

Yes, this should be good for businesses selling higher end goods. It would be bad though for businesses with very low margins, ex. small farms, mom and pop retailers, restaurants, cottage industries.

"And as long as there are "too many" workers in the JG pool, the government deficits continue -- and businesses will meet yet increasing demand. And finally they'll be able to hire. Higher labor costs -- but higher sales."

But with higher labour costs, they will have sell at higher prices, or go out of business.

"Why would you want to putdownward pressure on wages in economic upturns?"

"MMT, however, typically prefers wage- and price stabilityrather than increasing or decreasing wages and prices. A constant JG wage would constitute a stable nominal price anchor over the whole business cycle."

But the way they propose the JG, which is supposed to be similarly offered irrespective of whether we're in an upturn or downturn, means that labor costs increase too much during upturns, and likely pricing out many small and new businesses.

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"Conventional approaches, unconventional conclusions" on the global finance and economic issues of the day. Rogue Econ has been a banker and financial consultant in several countries. Welcome to my blog.